Educational Institution: Exemption u/s. 10(22):A. Y. 1998-99: Denial of exemption disputing genuineness of transaction: Contributor to assessee denying the transaction: Assessee should be given opportunity to cross-examine the disputant:

For the A. Y. 1998-99, the Assessing Officer made additions denying exemption u/s. 10(22) of the Income-tax Act, 1961, disputing the genuineness of a transaction wherein the contributor to the assessee had denied transaction. The assessee was not given the opportunity to cross-examine the said person. The Tribunal upheld the decision of the Assessing Officer. The Tribunal held that the assesee did not have the right to cross-examine the witness who made the adverse report, especially when the records did not indicate that the assessee had made any attempt to produce witnesses.

 On appeal by the assessee, the Madras High Court reversed the decision of the Tribunal and held as under:

 “i) When the authorities entertained a doubt about the genuineness of the transaction, the Tribunal ought to have afforded the assessee an opportunity to cross examine the disputant. The Revenue had not accepted the explanation given by the assessee. The assessee would not have expected one of the contributors to have denied the factum of contribution. This view was inevitable because but for this the assessee would not have opted to cross-examine the contributor.

 ii) Therefore, when there was unexpected change of facts, the party should not be deprived of the opportunity to cross-examine the witness branded as the assessee’s witness. The Evidence Act also permits a party to cross-examine his own witness under stated circumstances.

 iii) Unless it is proved that the income derived was covered u/s. 10(22) it could not be decided whether the addition u/s. 68 was possible or not. Therefore, the matter was remitted to the Assessing Officer for further consideration in the light of the legal position.”